Decided on July 14,1937

STATE Respondents


COSTELLO,.J. - (1.) THIS is a reference under Sec. 66(2) of the Indian Income -tax Act of 1922. The question for the consideration of the Court is set forth in paragraph 4 of his Statement of the Case in this form : - 'Whether in the facts and circumstance of the case, the sum of Rs. 5,577 spent by the assessee during the year ended December 31, 1935, to meet the litigation expenses can be said to be expenditure the incurred solely for the purpose of earning the profits within the meaning of Sec. 10(2)(ix) of the Indian Income Tax Act (XI of 1922) and consequently allowable as a deduction in computing the profits or gains of the business for the assessment year 1936 -37.'
(2.) THE facts of the case were these : The assessee is the Limited Company known as the Amrita Bazar Patrika Ltd., and its business is that of editing, publishing and selling a paper called The Amrita Bazar Patrika. On the March 23, 1935, it published in its daily edition in Calcutta a leader with the captain 'Calcutta High Court' and in that leader certain observations were made which reflected upon the independence of judiciary. On the March 29, 1935 a Rule was issued by the Court called upon the Editor and the Printer and Publisher of the Patrika to show cause before the Court on the 5th April following, why they should not be committed to jail for contempt of Court in having unlawfully published the article I have mentioned. The matter came before a Special Bench of this Court on the April 5, 1935. The judgment of the Court was declared on the April 8. The Editor and the Printer of the newspaper were found guilty of contempt of Court, the former being sentenced to 3 months simple imprisonment and the latter to one months simple imprisonment. Subsequently, there was an application for leave to appeal to the Privy Council which was rejected by this Court and later attempts were made to obtain special leave from the Judicial Committee of the Privy Council to appeal to His Majesty in Council. These attempts were also unsuccessful. It appears that the newspaper or rather the limited company, the Amrita Bazar Patrika Limited, met all the expenses in connection with the proceedings that is to say, the costs of defending the Editor and the Printer before this Court and the various other proceedings in connection with the matter. These expenses amounted to the sum of Rs. 5,577 -7 -9 pies which is the sum mentioned in the question put forward for our consideration. The company claimed that this sum ought to be allowed by the Income -tax Officer as a business expenditure, in other words, that it was an expenditure of the kind contemplated by Section 10(2)(ix) of the Income -tax Act. Sec. 10(1) of the Income -tax Act says that 'tax shall be payable by an assessee under the head 'Business' in respect of the profits or gains of any business carried on by him.' Sub -sec. (2) says that such profits or gains shall be computed after marking certain allowances. Then follow a catalogue of allowances, No. (ix) of which is described thus : -' any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains.'
(3.) THE assessee urged before the Commissioner of Income tax that a newspaper has two function -one, the conveying of news, and the other, that of serving as a guide and adviser seeking to form opinion and to influence the action of the public. As regards the second aspect, it is suggested that some privilege is extended to the publication of fair and accurate reports of political, judicial, legislative and other public and official proceedings and that comment on, or criticism of, the acts of persons before the public should be treated as privileged if they are made in a fair and reasonable spirit and not actuated by malice. It was further contended that a newspaper has to publish materials gathered from all parts of the world and that, therefore, it cannot be considered or treated as if it were infallible. In publishing news it is bound to take some risk and the risk attendant to the business of publishing a newspaper must be borne by the business itself. The learned Commissioner of Income Tax took the view, however -in our opinion, rightly -that what he was concerned with was the precise language of Section 10(2)(ix) and that all he had to decide was whether or not sum of Rs. 5,577 -7 -9 pies was deduction of the kind referred to in sub -clause (ix). The Commissioner points out that the assessment was for the year 1936 -37, and it was in respect of the income, profits or gains of the year ending December 31, 1935. The expenditure in respect of the contempt matter was incurred by the limited company during the year 1935 and, therefore, the whole question to be determined was whether in computing the profits or gains of the business carried on by the assessee during the year ended December 31, 1935, an allowance could be claimed in respect of that expenditure under the provisions of Section 10(2)(ix). The question which we have to answer is simply this : Can it be said that the expenditure which the limited company chose to incur was an expenditure incurred solely for the purpose of earning profits or gains ?;

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